Competition and Pricing Strategy, Research Paper Example

How does an organization’s competition affect its pricing strategy?

Within organizations, there are two different approaches to pricing; Demand-Based Pricing and Competition-Based Pricing. The below research would review competition-based pricing as a marketing approach for organizations. In this case, products would be similar to competition’s (equivalent), therefore, the pricing strategy would be based on the research of the market price throughout the competition. Competition-based pricing would help the organization increase sales and the share of the market at the same time, in case of homogeneous products. (Pride and Ferrell, 2012)

When applying a pricing strategy, various aspects need to be considered for making a decision. In case of a cooperative pricing, the coordination between competitors (Walker, 2003) can potentially increase profits throughout the market. Cooperative pricing can work between rivals on a market, in order to maintain relatively higher prices on competitive markets. Compared to pricing rivalry, when organizations focus on providing lower cost services or products to customers than other firms, this can be a profitable method. While rivalry can become destructive, if the costs of production and services are not assessed carefully, the cooperative approach would somewhat disadvantage customers, setting the prices higher than necessary.

One of the major industry forces influencing the profitability of the organization is competition. As there is no perfect competition in any industry, the approach to reduce the prices to marginal costs in order to compete with other players on the marketplace is the most common in highly competitive markets. However, the first organization developing an innovative price structure might be the winner of the competition; that is the reason why decision-making on a strategic organizational level in time is essential, as well as planning.

References

Walker, G. (2003) Modern Competitive Strategy. McGraw-Hill International.

Pride, W., Ferrell (2012) Foundations of Marketing. Cengage Learning.